Abstract
This paper empirically examines the intricate link between human capital and economic growth using panel data from 90 countries over the period 1970–2010 by employing a panel vector VAR approach under system GMM estimates. The paper visits the issues of feedback and composition effects which put a growing skepticism on the empirical studies evaluating the role of education on economic growth. The physical capital accumulation is also included into the analysis to deal with the omitted variable bias. The findings of the paper reveal that there are different linkages between human capital and economic growth for developing and OECD countries for the different stages of human capital formation. While secondary and tertiary education have predictive power for economic growth, economic growth does not predict human capital accumulation in the developing countries. In the OECD countries, the evidence indicates that tertiary education, which is the source of technological progress, promotes economic growth. On the other hand, results suggest that education spurs growth and in turn growth improves human capital formation in high income OECD economies. Findings are also supported by different lag orderings and different estimation techniques.
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Notes
The technological view of human capital is also documented in the studies by Benhabib and Spiegel (1994), Barro and Sala-i-Martin (1995) and Papageorgiou (2003). They show that interaction of human capital with technological progress plays a central role in understanding the human capital-growth nexus.
The diversity of the prior results may also be due to the choice of indicators used to represent human capital.
Glewwe et al. (2014) document that among the 15 studies working on the relationship between human capital and economic growth, 11 of them include physical capital formation in the econometric analysis.
According to the GNI in 2012, World Bank classifies countries into four categories, namely, low-income, lower-middle income, higher-middle income and higher income (OECD). See Appendix 1 for the classification of the countries.
Glewwe et al. (2014) emphasize the challenging econometric problems in examining the impact of human capital on economic growth and argue that the future studies should devote a special room in explaining the causality between human capital accumulation and economic growth.
The first set of data is associated with some interpretation problems since an increase in the % of population who have completed secondary education implies a reduction in the primary school graduates. The second set of data does not have any limitation in terms of interpretation.
Due to the lack of space, the panel unit root tests for levels are not reported but they are available upon request. Since the variables are non stationary at levels, Table 2 provides the unit root test results for the first differences of the variables. In this context, all variables are represented in the first difference of their logs.
The robust regression procedure is implemented by STATA via the rreg command.
Since the sample consists of only 12 low income countries due to the availability of data, econometric evidence for this group of countries should be interpreted with caution.
Due to the heteroscedaticity problem in the one-step estimates, robust-to-heteroscedasticity variance–covariance estimator is used as such the Sargan test statistics cannot be presented.
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Appendices
Appendix 1
See Table 11.
Appendix 2
See Tables 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 and Figs. 1, 2, 3, 4.
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Bayraktar-Sağlam, B. The Stages of Human Capital and Economic Growth: Does the Direction of Causality Matter for the Rich and the Poor?. Soc Indic Res 127, 243–302 (2016). https://doi.org/10.1007/s11205-015-0963-0
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DOI: https://doi.org/10.1007/s11205-015-0963-0